Obamacare by from The Weekly Standard, April 5, 2010

In the days since the enactment of their health care plan, Democrats in Washington have been desperately seeking to lodge the new program in the pantheon of American public-policy achievements. House Democratic whip James Clyburn compared the bill to the Civil Rights Act of 1964. Vice President Biden argued it vindicates a century of health reform efforts by Democrats and Republicans alike. House speaker Nancy Pelosi said “health insurance reform will stand alongside Social Security and Medicare in the annals of American history.”

Even putting aside the fact that Social Security and Medicare are going broke and taking the rest of the government with them, these frantic forced analogies are preposterous. The new law is a ghastly mess, which began as a badly misguided technocratic pipe dream and was then degraded into ruinous incoherence by the madcap process of its enactment.

Obamacare starts life strikingly unpopular and looks likely to grow more so as we get to know it in the coming months and years.

The appeals to history are understandable, however, because the Democrats know that the law is also exceedingly vulnerable to a wholesale repeal effort: Its major provisions do not take effect for four years, yet in the interim it is likely to begin wreaking havoc with the health care sector—raising insurance premiums, health care costs, and public anxieties. If those major provisions do take effect, moreover, the true costs of the program will soon become clear, and its unsustainable structure will grow painfully obvious. So, to protect it from an angry public and from Republicans armed with alternatives, the new law must be made to seem thoroughly established and utterly irrevocable—a fact on the ground that must be lived with; tweaked, if necessary, at the edges, but at its core politically untouchable.

But it is no such thing. Obamacare starts life strikingly unpopular and looks likely to grow more so as we get to know it in the coming months and years. The entire House of Representatives, two-thirds of the Senate, and the president will be up for election before the law’s most significant provisions become fully active. The American public is concerned about spending, deficits, debt, taxes, and overactive government to an extent seldom seen in American history. The excesses of the plan seem likely to make the case for alternative gradual and incremental reforms only stronger.

And the repeal of Obamacare is essential to any meaningful effort to bring down health care costs, provide greater stability and security of coverage to more Americans, and address our entitlement crisis. Both the program’s original design and its contorted final form make repairs at the edges unworkable. The only solution is to repeal it and pursue genuine health care reform in its stead.

 From Bad to Worse

To see why nothing short of repeal could suffice, we should begin at the core of our health care dilemma.

Conservative and liberal experts generally agree on the nature of the problem with American health care financing: There is a shortage of incentives for efficiency in our methods of paying for coverage and care, and therefore costs are rising much too quickly, leaving too many people unable to afford insurance. We have neither a fully public nor quite a private system of insurance, and three key federal policies—the fee-for-service structure of Medicare, the disjointed financing of Medicaid, and the open-ended tax exclusion for employer-provided insurance—drive spending and costs ever upward.

The disagreement about just how to fix that problem has tended to break down along a familiar dispute between left and right: whether economic efficiency is best achieved by the rational control of expert management or by the lawful chaos of open competition.

Liberals argue that the efficiency we lack would be achieved by putting as much as possible of the health care sector into one big “system” in which the various irregularities could be evened and managed out of existence by the orderly arrangement of rules and incentives. The problem now, they say, is that health care is too chaotic and answers only to the needs of the insurance companies. If it were made more orderly, and answered to the needs of the public as a whole, costs could be controlled more effectively.

Conservatives argue that the efficiency we lack would be achieved by allowing price signals to shape the behavior of both providers and consumers, creating more savings than we could hope to produce on purpose, and allowing competition and informed consumer choices to exercise a downward pressure on prices. The problem now, they say, is that third-party insurance (in which employers buy coverage or the government provides it, and consumers almost never pay doctors directly) makes health care too opaque, hiding the cost of everything from everyone and so making real pricing and therefore real economic efficiency impossible. If it were made more transparent and answered to the wishes of consumers, prices could be controlled more effectively.

That means that liberals and conservatives want to pursue health care reform in roughly opposite directions. Conservatives propose ways of introducing genuine market forces into the insurance system—to remove obstacles to choice and competition, pool risk more effectively, and reduce the inefficiency in government health care entitlements while helping those for whom entry to the market is too expensive (like Americans with preexisting conditions) gain access to the same high quality care. Such targeted efforts would build on what is best about the system we have in order to address what needs fixing.

Liberals, meanwhile, propose ways of moving Americans to a more fully public system, by arranging conditions in the health care sector (through a mix of mandates, regulations, taxes, and subsidies) to nudge people toward public coverage, which could be more effectively managed. This is the approach the Democrats originally proposed last year. The idea was to end risk-based insurance by making it essentially illegal for insurers to charge people different prices based on their health, age, or other factors; to force everyone to participate in the system so that the healthy do not wait until they’re sick to buy insurance; to align various insurance reforms in a way that would raise premium costs in the private market; and then to introduce a government-run insurer that, whether through Medicare’s negotiating leverage or through various exemptions from market pressures, could undersell private insurers and so offer an attractive “public option” to people being pushed out of employer plans into an increasingly expensive individual market.

Conservatives opposed this scheme because they believed a public insurer could not introduce efficiencies that would lower prices without brutal rationing of services. Liberals supported it because they thought a public insurer would be fairer and more effective.

But in order to gain 60 votes in the Senate last winter, the Democrats were forced to give up on that public insurer, while leaving the other components of their scheme in place. The result is not even a liberal approach to escalating costs but a ticking time bomb: a scheme that will build up pressure in our private insurance system while offering no escape. Rather than reform a system that everyone agrees is unsustainable, it will subsidize that system and compel participation in it—requiring all Americans to pay ever-growing premiums to insurance companies while doing essentially nothing about the underlying causes of those rising costs.

Liberal health care mavens understand this. When the public option was removed from the health care bill in the Senate, Howard Dean argued in the Washington Post that the bill had become merely a subsidy for insurance companies, and failed completely to control costs. Liberal health care blogger Jon Walker said, “The Senate bill will fail to stop the rapidly approaching meltdown of our health care system, and anyone is a fool for thinking otherwise.” Markos Moulitsas of the Daily Kos called the bill “unconscionable” and said it lacked “any mechanisms to control costs.”

Indeed, many conservatives, for all their justified opposition to a government takeover of health care, have not yet quite seen the full extent to which this bill will exacerbate the cost problem. It is designed to push people into a system that will not exist—a health care bridge to nowhere—and so will cause premiums to rise and encourage significant dislocation and then will initiate a program of subsidies whose only real answer to the mounting costs of coverage will be to pay them with public dollars and so increase them further. It aims to spend a trillion dollars on subsidies to large insurance companies and the expansion of Medicaid, to micromanage the insurance industry in ways likely only to raise premiums further, to cut Medicare benefits without using the money to shore up the program or reduce the deficit, and to raise taxes on employment, investment, and medical research.

The case for averting all of that could hardly be stronger. And the nature of the new law means that it must be undone—not trimmed at the edges. Once implemented fully, it would fairly quickly force a crisis that would require another significant reform. Liberals would seek to use that crisis, or the prospect of it, to move the system toward the approach they wanted in the first place: arguing that the only solution to the rising costs they have created is a public insurer they imagine could outlaw the economics of health care. A look at the fiscal collapse of the Medicare system should rid us of the notion that any such approach would work, but it remains the left’s preferred solution, and it is their only plausible next move—indeed, some Democrats led by Iowa senator Tom Harkin have already begun talking about adding a public insurance option to the plan next year.

Because Obamacare embodies a rejection of incrementalism, it cannot be improved in small steps. Fixing our health care system in the wake of the program’s enactment will require a big step—repeal of the law before most of it takes hold—followed by incremental reforms addressing the public’s real concerns.

 The Case for Repeal

That big step will not be easy to take. The Democratic party has invested its identity and its future in the fate of this new program, and Democrats control the White House and both houses of Congress. That is why the conservative health care agenda must now also be an electoral agenda—an effort to refine, inform, and build on public opposition to the new program and to the broader trend toward larger and more intrusive, expensive, and fiscally reckless government in the age of Obama. Obamacare is the most prominent emblem of that larger trend, and its repeal must be at the center of the conservative case to voters in the coming two election cycles.

The design of the new law offers some assistance. In an effort to manipulate the program’s Congressional Budget Office score so as to meet President Obama’s goal of spending less than $1 trillion in its first decade, the Democrats’ plan will roll out along a very peculiar trajectory. No significant entitlement benefits will be made available for four years, but some significant taxes and Medicare cuts—as well as regulatory reforms that may begin to push premium prices up, especially in the individual market—will begin before then. And the jockeying and jostling in the insurance sector in preparation for the more dramatic changes that begin in 2014 will begin to be felt very soon.

To blunt the effects of all this, the Democrats have worked mightily to give the impression that some attractive benefits, especially regarding the rules governing insurance companies, will begin immediately. This year, they say, insurance companies will be prevented from using the preexisting medical condition of a child to exclude that child’s parents from insurance coverage, and a risk-pool program will be established to help a small number of adults who are excluded too. Additionally, insurance policies cannot be cancelled retroactively when someone becomes sick, some annual and lifetime limits on coverage are prohibited, and “children” may stay on their parents’ insurance until they turn 26. Obamacare’s champions hope these reforms might build a constituency for the program.

But these benefits are far too small to have that effect. The preexisting condition exclusion prohibits only the refusal to cover treatment for a specific disease, not the exclusion of a family from coverage altogether, and applies only in the individual market, and so affects almost no one. More than half the states already have laws allowing parents to keep adult children on their policies—through ages varying from 24 to 31. And the other new benefits, too, may touch a small number of people (again, mostly in the individual market, where premiums will be rising all the while), but will do nothing to affect the overall picture of American health care financing. CBO scored these immediate reforms as having no effect on the number of uninsured or on national health expenditures.

The bill will also have the government send a $250 check to seniors who reach the “donut hole” gap in Medicare prescription drug coverage this year—and the checks will go out in September, just in time for the fall elections. But the checks will hardly make up for the significant cuts in Medicare Advantage plans that allow seniors to choose among private insurers for their coverage. Those cuts begin in 2011, but the millions of seniors who use the program will start learning about them this year—again, before the election—as insurance companies start notifying their beneficiaries of higher premiums or cancelled coverage.

We are also likely to see some major players in health insurance, including both large employers and large insurers, begin to take steps to prepare for the new system in ways that employees and beneficiaries will find disconcerting. Verizon, for instance, has already informed its employees that insurance premiums will need to rise in the coming years and retiree benefits may be cut. Caterpillar has said new taxes and rules will cost the company $100 million in just the next year, and tractor maker John Deere has said much the same. Such announcements are likely to be common this year, and many insurers active in the individual market are expected to begin curtailing their offerings as that market looks to grow increasingly unprofitable under new rules.

These early indications will help opponents of the new law make their case. But the case will certainly need to focus most heavily on what is to come in the years after this congressional election: spending, taxes, rising health care costs, cuts in Medicare that don’t help save the program or reduce the deficit, and a growing government role in the management of the insurance sector.

The numbers are gargantuan and grim—even as laid out by the Congressional Budget Office, which has to accept as fact all of the legislation’s dubious premises and promises. If the law remains in place, a new entitlement will begin in 2014 that will cost more than $2.4 trillion in its first 10 years, and will grow faster than either Medicare or private-sector health care spending has in the past decade.

Rather than reducing costs, Obamacare will increase national health expenditures by more than $200 billion, according to the Obama administration’s own HHS actuary. Premiums in the individual market will increase by more than 10 percent very quickly, and middle-class families in the new exchanges (where large numbers of Americans who now receive coverage through their employers will find themselves dumped) will be forced to choose from a very limited menu of government-approved plans, the cheapest of which, CBO estimates, will cost more than $12,000. Some Americans—those earning up to four times the federal poverty level—will get subsidies to help with some of that cost, but these subsidies will grow more slowly than the premiums, and those above the threshold will not receive them at all. Many middle-class families will quickly find themselves spending a quarter of their net income on health insurance, according to a calculation by Scott Gottlieb of the American Enterprise Institute.

Through the rules governing the exchanges and other mechanisms (including individual and employer insurance mandates, strict regulation of plan benefit packages, rating rules, and the like), the federal government will begin micromanaging the insurance sector in an effort to extend coverage and control costs. But even CBO’s assessment does not foresee a reduction in costs and therefore an easing of the fundamental source of our health care woes.

To help pay for the subsidies, and for a massive expansion of Medicaid, taxes will rise by about half a trillion dollars in the program’s first 10 years—hitting employers and investors especially hard, but quickly being passed down to consumers and workers. And the law also cuts Medicare, especially by reducing physician and hospital payment rates, by another half a trillion dollars—cuts that will drastically undermine the program’s operation as, according to the Medicare actuary, about 20 percent of doctors and other providers who participate in the program “could find it difficult to remain profitable and, absent legislative intervention, might end their participation.” And all of this, CBO says, to increase the portion of Americans who have health insurance from just under 85 percent today to about 95 percent in 10 years.

Of course, this scenario—for all the dark prospects it lays out—assumes things will go more or less as planned. CBO is required to assume as much. But in a program so complex and enormous, which seeks to take control of a sixth of our economy but is profoundly incoherent even in its own terms, things will surely not always go as planned. The Medicare cuts so essential to funding the new entitlement, for instance, are unlikely to occur. Congress has shown itself thoroughly unwilling to impose such cuts in the past, and if it fails to follow through on them in this case, Obamacare will add hundreds of billions of additional dollars to the deficit. By the 2012 election, we will have certainly begun to see whether the program’s proposed funding mechanism is a total sham, or is so unpopular as to make Obamacare toxic with seniors. Neither option bodes well for the program’s future.

Some of the taxes envisioned in the plan, especially the so-called Cadillac tax on high-cost insurance, are also unlikely to materialize quite as proposed, adding further to the long-term costs of the program. And meanwhile, the bizarre incentive structures created by the law (resulting in part from the elimination of the public insurance plan which was to have been its focus) are likely to cause massive distortions in the insurance market that will further increase costs. The individual market will quickly collapse, since new regulations will put it at an immense disadvantage against the new exchanges. We are likely to see significant consolidation in the insurance sector, as smaller insurers go out of business and the larger ones become the equivalent of subsidized and highly regulated public utilities. And the fact that the exchanges will offer subsidies not available to workers with employer-based coverage will mean either that employers will be strongly inclined to stop offering insurance, or that Congress will be pressured to make subsidies available to employer-based coverage. In either case, the program’s costs will quickly balloon.

Perhaps worst of all, the law not only shirks the obligation to be fiscally responsible, it will also make it much more difficult for future policymakers to do something about our entitlement and deficit crisis. Obamacare constructs a new entitlement that will grow more and more expensive even more quickly than Medicare itself. Even if the program were actually deficit neutral, which it surely won’t be, that would just mean that it would keep us on the same budget trajectory we are on now—with something approaching trillion-dollar deficits in each of the next 10 years and a national debt of more than $20 trillion by 2020—but leave us with much less money and far fewer options for doing anything about it.

In other words, Obamacare is an unmitigated disaster—for our health care system, for our fiscal future, and for any notion of limited government. But it is a disaster that will not truly get underway for four years, and therefore a disaster we can avert.

This is the core of the case the program’s opponents must make to voters this year and beyond. If opponents succeed in gaining a firmer foothold in Congress in the fall, they should work to begin dismantling and delaying the program where they can: denying funding to key provisions and pushing back implementation at every opportunity. But a true repeal will almost certainly require yet another election cycle, and another president.

The American public is clearly open to the kind of case Obamacare’s opponents will need to make. But keeping voters focused on the problems with the program, and with the reckless growth of government beyond it, will require a concerted, informed, impassioned, and empirical case. This is the kind of case opponents of Obamacare have made over the past year, of course, and it persuaded much of the public—but the Democrats acted before the public could have its say at the polls. The case must therefore be sustained until that happens. The health care debate is far from over.

 Toward Real Reform

Making and sustaining that case will also require a clear sense of what the alternatives to Obama-care might be—and how repeal could be followed by sensible incremental steps toward controlling health care costs and thereby increasing access and improving care.

Without a doubt, the Democrats’ program is worse than doing nothing. But the choice should not be that program or nothing. The problems with our health care system are real, and conservatives must show the public how repealing Obamacare will open the way to a variety of options for more sensible reforms—reforms that will lower costs and help those with preexisting conditions or without affordable coverage options, but in ways that do not bankrupt the country, or undermine the quality of care or the freedom of patients and doctors to make choices for themselves.

Republicans this past year offered a variety of such approaches, which varied in their ambitions, costs, and forms. A group led by representatives Paul Ryan and Devin Nunes and senators Tom Coburn and Richard Burr proposed a broad measure that included reforms of Medicare, Medicaid, the employer-based coverage tax exclusion, and malpractice liability and would cover nearly all of the uninsured. The House Republican caucus backed a more modest first step to make high-risk pools available to those with preexisting conditions, enable insurance purchases across state lines, pursue tort reform, and encourage states to experiment with innovative insurance regulation. Former Bush administration official Jeffrey Anderson has offered an approach somewhere between the two, which pursues incremental reforms through a “small bill.” Other conservatives have offered numerous other proposals, including ways of allowing small businesses to pool together for coverage, the expansion of Health Savings Accounts and consumer-driven health care (which Obama-care would thoroughly gut), and various reforms of our entitlement system.

All share a basic commitment to the proposition that our health care dilemmas should be addressed through a series of discrete, modest, incremental solutions to specific problems that concern the American public, and all agree that the underlying cause of these problems is the cost of health coverage and care, which would be best dealt with by using market forces to improve efficiency and bring down prices.

The approach to health care just adopted by President Obama and the Democratic Congress thoroughly fails to deal with efficiency and cost, and stands in the way of any meaningful effort to do so. It is built on a fundamental conceptual error, suffers from a profound incoherence of design, and would make a bad situation far worse. It cannot be improved by tinkering. It must be removed before our health care crisis can be addressed.

If we are going to meet the nation’s foremost challenges—ballooning debt, exploding entitlements, out of control health care costs, and the task of keeping America strong and competitive—we must begin by making Obamacare history. We must repeal it, and then pursue real reform.


© 2010 by The Weekly Standard. Reprinted by permission.